'End' of summer gives traders relief

NEW YORK -- As Wall Street traders, economists and analysts left for Labor Day vacations yesterday, their departure seemed more a flight than the start of a long weekend.

"The best you can say about August is that we survived without the much-predicted collapse," said Michael Sherman, chief investment strategist at Shearson Lehman Brothers Inc.

Although yesterday was not the end of a quarter or the end of a month, the Labor Day weekend is traditionally when analysts reassess where the market is heading. The Dow Jones industrial average closed down 10.27 points to 3,281.93, capping a 4 percent drop since the start of August. The past week saw a net gain of 14.32 points for the Dow.

Analysts usually divide the stock market into cycles, with the August-to-October period often marked by volatility and losses. Considering the weight of bad news surrounding the stock market over the past month,some experts said the market has not done too badly.

"It wasn't a bad summer. The [Republican] convention didn't help -- people expected more. Now they are nervous," said William LeFevre of Tucker Anthony Inc.

Economists said the market has been concerned about the spate of bad economic reports published by the government and the general uncertainty preceding the election.

But low inflation and low interest rates have helped offset what could have been confidence-crushing statistics, said Donald Straszheim, chief economist at Merrill Lynch, Pierce, Fenner & Smith Inc.

"The economic backdrop to the market is, in a word, terrible," Mr. Straszheim said.

One bright light has been that interest rates are so low that investors have had little choice but to buy stocks. This has buoyed the market at a time when worries of long-term U.S. economic stagnation are solidifying, he said.

Although the signs have been bad, the deciding period will start this coming week when businesses and traders return from summer vacations and new economic data, such as the Producer Price Index, is released.

If the signs continue to point negative, then the benefits of low inflation and interest rates will be outweighed by fears that third-quarter profits will be hurt. Companies have been reporting generally strong profits, but if this trend reverses at the close of the third quarter, which runs from July to September, then the market could turn down, said Taka Kigawa, assistant vice president for Daiwa International's U.S. equity department.

"People are hungry to get some good numbers -- not even the government reports but the earnings. That's the key and that's what we'll be anticipating in September," Mr. Kigawa said.